HSA Rules

by Ben Bontekoe ; Updated July 27, 2017

A health savings account (HSA) is an alternative to traditional health insurance. You can open an HSA if you are under age 65, covered by a high deductible health plan (HDHP), and do not have any other medical insurance.

Function

You can use money contributed to an HSA to pay for qualified medical expenses not covered by insurance, often including dental, vision and some medicines, both prescription and over-the-counter.

Features

Funds in an HSA are invested according to your direction, and earnings on investments grow tax-deferred. Withdrawals are tax-free, as long as the money is used for qualified medical expenses.

Benefits

You can use your HSA to pay for medical expenses for any member of your family. Unused funds roll over from year to year—you won't lose any unspent money.

Considerations

HSA contributions are tax-deductible, regardless of whether you itemize deductions. Your employer may also contribute to your HSA, which will count toward your maximum annual contribution.

Warning

You can withdraw funds for any reason, but withdrawals not used for qualified medical expenses are subject to taxes, as well as a 10 percent penalty if you are under age 65.

About the Author

Ben Bontekoe is a published writer with an extensive background in personal finance, banking, career counseling and education. A graduate of Calvin College, he has worked for major financial institutions including Bank of America and Citibank.